There's been a lot of buzz about ethanol--a motor fuel that is made domestically from corn. But what's the truth? Could it be the cure-all for America's dependence on foreign oil? Or is it just a federal handout to farmers for a fuel that will never solve America's energy problems?

After an extensive investigation on ethanol, Consumer Reports found that the truth is, predictably, between the two extremes.

With potential international action looming against Iran and increased energy demands by China and India, oil prices have been spiking to record levels, and scientists have stepped up the search for alternative fuels. Even with these efforts, it may take many years to build out any new fuel infrastructure. While research into hydrogen fuel continues, ethanol will likely make a bigger impact in the near term. Ethanol can be produced in larger amounts than biodiesel, and it requires fewer technological breakthroughs and less infrastructure development than batteries or fuel cells.

The U.S. government is subsidizing ethanol sales today with a 51-cent-per-gallon tax credit, and a federal mandate to blend 7.5 billion gallons by 2012. Critics say that amounts to a gift to farmers for an inefficient fuel.

The Government Accountability Office estimated ethanol tax incentives in 2000. When Consumer Reports adjusted the GAO data for inflation to 2005 dollar values, these estimates totaled $13.5 billion from 1980-2000. In the same study, the GAO estimated oil industry subsidies amounted to an adjusted $68 billion in the same time period. And that's just in cumulative tax incentives. While some of those incentives are for exploration of other alternative fuels such as oil from tar sands, shale, and coal, the tax incentives amount to $55.5 billion even not counting the alternative fuel dollars.

Debate has raged for decades over whether ethanol can, in fact, save any oil or whether it takes so much fertilizer, tractor fuel, and coal-produced electricity to make it, plus transport it by truck, that it would be more efficient to just burn gasoline. But most scientists now agree that on balance, ethanol provides a 23 to 40 percent energy benefit.

Ethanol emits fewer smog-causing pollutants than gasoline, but one major misconception is that it will provide better fuel economy. In fact, cars running on E85 ethanol (a mix of 85 percent ethanol with 15 percent gasoline) get worse fuel economy and go fewer miles per gallon than they do on gasoline. Yet, automakers have an artificial incentive from the government to produce flexible-fuel vehicles (FFV) since they get credit in CAFE estimates, boosting their average.

When we tested a 2007 Chevrolet Tahoe flex-fuel vehicle on the two fuels, we found that the mileage dropped 27 percent -fuel consumption went from 14 to 10 mpg overall.

That means that to go an equal number of miles, you'd pay the equivalent of $3.89 a gallon for E85, versus a national average price of $2.84 for gasoline the last week of August, 2006. That's a difference few drivers will want to take to the bank. It also means that instead of driving almost 450 miles on a tank of gas, the Tahoe could go only about 300 miles on a tank of E85. While ethanol is no energy panacea, it is worth developing as one of the alternatives that may be part of a suite of energy sources that will ease the pressure on gasoline supplies in the coming decades.--Eric Evarts

For more on ethanol, read "The ethanol myth: Consumer Reports' E85 tests show that you'll get cleaner emissions but poorer fuel economy ... if you can find it."

Discuss ethanol and flex-fuel vehicles in the Consumer Reports forums.